Cryptocurrencies Are Touted as Resilient During Wars, but Bitcoin Is Falling Since Hamas Attacked Israel

Bitcoin BTCUSD, 2.84%, the world’s most famous cryptocurrency, has experienced a notable decline in value since the Hamas militant group’s unprecedented attack on Israel on October 7th. This turn of events challenges a long-standing industry view of cryptocurrency as a non-sovereign store of value, particularly useful during wars and natural disasters. It significantly contrasts Bitcoin’s rally after Russia invaded Ukraine in February 2022.

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Bitcoin’s Role in Wars and Global Economics

Bitcoin’s price is primarily influenced by macroeconomic conditions. With the global economy facing the looming risks of a recession, experts like Alex Tapscott, Head of Digital Assets and Portfolio Manager at Ninepoint Partners, emphasise the role of global conflicts in shaping market dynamics.

Tapscott suggests that ongoing wars in the Middle East and Europe and heightened tensions worldwide introduce substantial risks to the market. In such volatile times, Bitcoin’s supposed stability as a store of value is questioned.

Furthermore, Bitcoin’s reputation hit when a Wall Street Journal article revealed that three militant groups, namely Hamas, Palestinian Islamic Jihad, and their Lebanese ally Hezbollah, received significant funds through cryptocurrency in the year leading up to the attacks on Israel. The U.S. government has named all three of these groups foreign terrorist organisations, and they are subject to sanctions by the Treasury Department.

Nicholas Colas, Co-Founder at DataTrek, commented on the situation, saying, “It is too early to tell how much reputational damage has been done to the digital asset space or what the longer-run regulatory repercussions will be”. He also noted that this revelation would likely intensify calls for greater regulation in the cryptocurrency industry before investment products like ETFs can be safely introduced to the public. In light of these developments, investors may adopt a cautious approach to virtual currency holdings.

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Crypto in Conflict Zones

While the decline in Bitcoin’s value is notable, it’s important to consider the cryptocurrency’s use in conflict zones. Notably, both parties involved in the Ukraine-Russia war have used cryptocurrency in fundraising efforts, underlining cryptocurrencies’ versatile role in geopolitics.

The situation further intensifies with the ongoing trial of Sam Bankman-Fried, FTX founder, attracting significant crypto community attention. Caroline Ellison, the former CEO of FTX’s sister hedge fund, Alameda Research, has testified in the trial, revealing critical insights.

As per information from the Wall Street Journal, Ellison testified that Bankman-Fried instructed her and others to engage in criminally fraudulent activities. She further disclosed that they had been aware of Alameda’s precarious financial conditions for months, expressing concerns about the fund’s potential collapse. These revelations underline the complex ethical and legal considerations surrounding the cryptocurrency industry.

Market Impact

Bitcoin BTCUSD, 2.84%, lost 3.4% over the past week, trading at approximately $26,720 on Thursday, according to CoinDesk data. Ether ETHUSD, 2.31%, also saw a 5.3% decline during the same period, trading at around $1,531.

The effects of the ongoing conflicts, particularly in the Middle East, have the potential to spill over into the crypto markets, causing a short-term decline in riskier assets like Bitcoin. Market experts and traders are closely monitoring the situation.

Concerns are mounting as the conflict in the Middle East continues into its fourth day following Hamas’s surprise attack on Israeli towns. The Associated Press revealed the death toll on both sides has reached nearly 1,600.

Greta Yuan, Head of Research at digital assets platform VDX, commented, “The global market worries that the conflict will spread to nearby oil-producing countries, so investors are still relatively sensitive”. As geopolitical tensions worsen, market sentiment turns risk-averse, leading to increased investments in traditional safe-haven assets, including spot gold.

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Geopolitical Factors and Crypto Market Resilience

The crypto market experienced a 2% slump on Monday, October 9, as traders factored in rising oil prices and the potential impact of turmoil on international trade. During this time, futures traders betting on higher prices saw over $100 million in liquidations within hours, resulting in a sell-off of alternative cryptocurrencies. Despite these challenges, the crypto market has displayed early signs of resilience.

Jeff Mei, Chief Operating Officer of crypto exchange BTSE, pointed out that Bitcoin’s price temporarily dipped following the news of the conflict but has since stabilised. He highlighted previous instances, such as the U.S. sanctions following Russia’s invasion of Ukraine in March 2022, where Bitcoin and the broader crypto market rebounded after a decline.

Historically, geopolitical struggles have had a significant impact on the cryptocurrency market. During such times, investors often flock to traditional safe-haven assets like gold, while riskier assets like cryptocurrencies tend to see declines. Therefore, investors must closely monitor oil and energy market changes to gain insight into Bitcoin’s potential direction.

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Energy Price Impact

Alex Kuptsikevich, FxPro Senior Market Analyst, emphasised the importance of monitoring energy prices. Rising oil prices can trigger a wave of sell-offs in equities and fuel expectations of tighter monetary policies. This shift poses a considerable risk to assets like Bitcoin and the broader crypto market.

Kuptsikevich also noted that a quick return to normalcy in the conflict zone could be positive for cryptocurrencies. However, at this moment, such a scenario appears less likely, increasing the chances of a decline in appetite for equities and cryptocurrencies compared to recent weeks.

Conclusion

Recently, global conflicts, especially the Middle East and Ukraine-Russia tensions, have challenged Bitcoin’s role as a non-sovereign store of value. Its decline in value reflects the complexity of cryptocurrency’s reputation in times of war and geopolitical instability. As conflicts persist and escalate, the cryptocurrency market remains sensitive to the impact on international trade and energy markets. However, history shows that the crypto market has demonstrated resilience, and investors continue to monitor the situation closely for potential market changes and opportunities. The evolving role of Bitcoin in geopolitics and conflicts highlights the need for ongoing regulation and ethical considerations within the cryptocurrency industry.

Frequently Asked Questions

How Has the Middle East Conflict Impacted Bitcoin’s Price and Reputation?

The recent conflict in the Middle East has challenged the industry’s long-held view of Bitcoin as a non-sovereign store of value. This has led to a decline in Bitcoin’s price, primarily influenced by macroeconomic conditions. The global economy is facing risks of a recession, and heightened tensions around the world have created market risks. The use of Bitcoin by militant groups like Hamas has also raised concerns about its reputation.

Will Bitcoin Be Affected by Global Conflicts and Tensions, Like Ukraine and the Middle East Situations?

Macroeconomic conditions and global events, including conflicts and geopolitical tensions, dominate Bitcoin’s price. The recent decline in Bitcoin’s price resulting from the war in the Middle East suggests that such events can influence Bitcoin. The market is sensitive to the possibility of conflict spreading to nearby oil-producing countries, impacting investor sentiment.

What Are the Dangers and Advantages of Investing in Bitcoin During Global Uncertainty and Conflicts?

Investing in Bitcoin during global economic uncertainty and conflicts carries risks and benefits. Bitcoin’s price can be volatile, and geopolitical events, regulatory changes, and market sentiment can influence it. While Bitcoin has shown resilience in the face of geopolitical turmoil in the past, it is essential to monitor energy prices and global economic conditions to gain insights into Bitcoin’s performance. Rising oil prices and conflict escalation can trigger sell-offs, affecting Bitcoin’s value. However, if there’s a return to normalcy, it could be positive for cryptocurrencies. Investors need to weigh these factors carefully.